Port Ballidu Pty Ltd v Frews Lawyers & Ors

In this matter the appellant appealed against a decision granting summary judgment in favour of the respondents. The primary judge had held that the appellant’s claim for equitable compensation for knowing assistance (liability under the second limb of the so-called rule in Barnes v Addy) was limited by way of analogy with the limitation period in s 1317K of the Corporations Act 2001 (Cth) which applies, among other things, to ss 181 to 182 and claims for being knowingly concerned in contraventions of those provisions. The appellant argued that this was inconsistent with s 185 of the Act which seeks to preserve the general law in relation to duties owed to corporations. This argument was rejected by the Court of Appeal.

Fraser and McMurdo JJA and Boddice J

5 June 2018

In 2006, one of the appellant’s three directors executed a mortgage of land owned by the appellant without the appellant’s consent. [2]. The director used the money for his own benefit and was subsequently bankrupted. [2]. The appellant commenced proceedings against the firm of solicitors and the solicitor (the “respondents”), among others, who had acted for the lender in the transaction. [3]. The appellant’s claim was for (i) equitable compensation for the respondents’ alleged knowing participation in the breach of duties by the director; (ii) compensation pursuant to the Australian Consumer Law for the respondents’ allegedly being knowingly concerned in the director’s misleading and deceptive conduct; and (iii) damages for negligence. [3]. The proceeding was commenced more than six years after the appellant incurred the loss allegedly caused by the respondents’ conduct. [4].

In a proceeding for summary judgment, the primary judge held that the appellant’s claim against the respondents for misleading and deceptive conduct was barred by the six year limitation in the Australian Consumer Law and the claim for negligence was barred by the six year limitation period in the Limitation of Actions Act 1974. [4]. The primary judge also held that the claim for equitable compensation was barred by analogy with the limitation period in s 1317K of the Corporations Act 2001 (Cth), which also bars claims for compensation for contraventions of provisions of that Act brought more than six years after the contravention. [5]. It was against this latter conclusion that the appellant appealed.

The primary judge considered that the appellant’s claim for equitable compensation for knowing assistance resembled a corresponding claim for compensation pursuant to the Corporations Act for being knowingly concerned in the director’s breach of the duties in s 181 and 182 of the Corporations Act. [7]. Further, the primary judge did not consider it would be unconscionable or unconscientious for the defendants to rely upon such a limitation period. [8]. Accordingly, the primary judge held that the statutory limitation period applied by analogy to the claim for equitable compensation, applying the principle articulated in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435. [9].

The appellant appealed on various grounds but ultimately advanced only the contention that s 185 of the Corporations Act precluded the application by analogy of the time bar in s 1317K of the Corporations Act, which seeks to preserve the general law in relation to the duties to corporations under ss 180 to 184 of the Act. [11].

The appellant argued that “each of paragraphs (a) and (b) of section 185 precludes the application of section 1317K, with reference to any of sections 180 to 184, as a bar to its claim for compensation under the relevant ‘rule of law’ (the second limb of the rule in Barnes v Addy).” [15]. However, in Re Auzhair Supplies Pty Ltd (in liq) (2013) 272 FLR 304, Brereton J rejected this very argument. [16]. The appellant argued that “contrary to Brereton J’s conclusion, application by analogy of the statutory limitation period in section 1317K involves sections 182 and 1837 operating to prevent the commencement of civil proceedings under the second limb of the rule in Barnes v Addy.” [17].

This argument was rejected by the Court of Appeal. [18]. Fraser JA, with whom McMurdo JA and Boddice J agreed, said:

“[I]t is the equitable principle itself that requires the application of the time bar. It is not section 1317K, much less any of sections 180 to 184, which applies the time bar. Section 185 concerns only the effect of sections 180 to 184.” [18].

The Court of Appeal therefore held that s 185 is not inconsistent with the conclusion that the appellant’s claim for equitable compensation was limited by analogy with the time bar in s 1317K. [19]. The appeal was dismissed with costs. [21].

J English